To help investors (and customers) identify businesses that are committed to impact, or operating sustainably, a few standards and certifications have been developed. Examples include B Corporation (https://bcorporation.net/), Impact Group (https://impactgroup.info/network-accreditation/) and others
Question number two today:
Q2. 1. Our research suggests that investors are an under-utilised and often overlooked source of expertise and support for companies who are serious about embedding purpose. What are the ways that investors and other stakeholders can influence how a business behaves and performs?
A1.For me some of the key factors of an authentic business purpose are: firstly it needs to benefit society, in the context of the impact of global trends like climate change, the biodiversity crisis, urbanisation and inequality. This works best when it combines an ‘outside-in’ approach that draws out how global trends are shaping the external context with an ‘inside-out’ that draws out the historical, cultural and core capabilities of the company.
Secondly it needs to identify the natural and social dependencies across the value chain and then set evidence-based goals for them- these become markers for how- and how fast- they need to innovate the business model and proposition. This also helps to prioritise stakeholders that in turn helps it to navigate trade-offs and inform strategic decision-making. These are unlikely to be included in the purpose statement, but need to underpin it.
A1: [Cont.] I have written about that here, as has Mike Krzus in a piece in Responsible investor, which was followed by a rebuttal and a response from PMI. It should be noted that I can already hear, “Sure, easy to write a little Statement of Purpose but what about putting it into action?” As an aside, if it’s so easy why hasn’t a single one of the 181 companies whose CEOs signed the Business Roundtable’s “Statement of the Purpose of a Corporation” done the same? But the question is fair enough. I encourage everyone to withhold final judgment until they read PMI’s first integrated report which will be published at the end of the month.
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A2: There are many ways for investors of all sizes to help influence companies. If you are a big investor like a pension fund, you or your fund manager can vote at AGMs or meet with companies to set purpose-driven goals and targets.
Many do this together via initiatives like Climate Action 100+ or show commitments to a net zero future via UN-convened Net-Zero Asset Owners Alliance.
Smaller investors, like charities, can group together to achieve the same things or simply choose sustainable or impact investment funds from the get go. Even individuals like you and I can write to our pension funds asking for action or invest in a positive impact investment platform like Tickr, Big Exchange, Ethex and Clim8. Then we can all support purpose-driven business day to day in our spending.
Sustainable investments have been beating traditional investments over the long term and particularly in times of crisis. We’ve seen it again during this one. So pushing for purpose with our investment money is good for people, planet AND our pockets.
I’ll be honest @reccles, I don’t agree. I don’t think that a company whose product is responsible for causing major health problems can claim to be purpose driven. This obviously raises questions about other companies in the food and beverage space, but tobacco is in a class of its own, and continues to seek new customers around the globe for a product that is highly problematic and causes major societal and economic tolls.
- In December 2019 we held an investor relations event to explain the why and the how of purpose, sustainability and our business strategy. We found investors asking the right questions and, together with evidence of ESG investing, this creates fertile ground for purposeful businesses.
It’s not just investors asking questions – citizens are looking for more considerate, purposeful business that serves society. Covid-19 has uncovered this with the Edelman Trust Barometer revealing that nearly three-quarters (74%) of people warn that companies placing profits before people will lose their trust forever.
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A2: From our research it looks like capital for impact is available but the offer of impact investment programs is still low. Few companies know how to navigate the complexity of setting standards, tracking, measuring, and reporting the impact of purpose-led programs. Financial institutions can be a very skilled partner in helping to do so!
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Here is the link to that paper Prof Eccles mentions: https://hbr.org/2019/05/the-investor-revolution
A.2: There are many ways in which investors can influence how a business behaves, when it comes to embedding purpose. I would like to highlight two:
- The first one is “simply” by asking companies to be transparent about what they do to embed purpose. We often hear from company representatives themselves that if there are no investors asking about these issues, if the external pressure is lacking, it is very difficult for them to push for more to be done internally. This ask may be articulated through formal routes (resolutions, AGM voting) but also through individual conversations with companies or through collective engagement initiatives (where like-minded investors come together to push for improvements in a specific area). A recent example of this is a joint statement coordinated by the Investor Alliance for Human Rights (IAHR) in connection with the [CHRB results](https://investorsforhumanrights.org/sites/default/files/attachments/2020-03/Letter Calling on Companies to Improve Human Rights Performance_FINAL_Feb 28.pdf). In some cases, the ask may be of other stakeholders, like governments, with indirect effects on companies. A recent example of this would be this call on governments to institute mandatory human rights due diligence for companies.
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A2. Since the board of directors is the body with the highest level of accountability for the corporation, shareholders and other stakeholders should request that the board publish a simple two -or three -page, stakeholder inclusive “Statement of Purpose.” It is the board’s role to define the intergenerational purpose of the corporation. What is the role of that particular company in society? A good Statement has two characteristics. First, it is unique to the company. You couldn’t just swap out for the name of a major competitor and have it read the same. Second, it addresses the “bad stuff.” What are the negative externalities being created by the company’s operations and products and services (and all companies have them) and what is it doing about them. The Statement forms the basis of how the board engages with shareholders and other stakeholders.
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A1- Investors could be much more proactive in terms of signalling their expectations of companies within their funds, such as through voting.
There is a real opportunity to shift from risk avoidance (such as TCFD) to opportunity identification and value capture from the profound changes taking place. This often involves a business re-thinking and discovering how they can redeploy their core capabilities in a rapidly changing world. Going back to Umicore, they pivoted around their core capabilities of material science, chemistry and metallurgy. So it can be about building on what the business is good at.
A2: As an early stage investor, Acumen influences our portfolio companies in a variety of ways, with a major focus on issues of governance, tracking social impact, and providing support on gender integration. We have worked with our portfolio companies to create greater board diversity, to develop and test inclusive business strategies that engage more women as sales agents, and to listen to low income customers in ways that can impact product design, after sales service, and marketing strategies.
Hi everyone - I’m Erin Pham Steinhauer. I am the VP of Social Impact at Visa. Great to be here.
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- Another way in which investors can influence how a businesses embeds purpose builds on the first one but goes further. Beyond asking companies to improve and to do more, investors can work with companies on these issues and share guidance. They can do so through their own in-house expertise as well as expertise from groups like the IAHR, but also building on concrete data from benchmarks produced by WBA like the CHRB, or others like KnowtheChain or Ranking Digital Rights.
Hi Bob, Id be interested to get your view on how imporatnt it is to change the law so that articles of association allow a business to prioritise other stakeholders and nt just shareholders. Do you think they can operate a multi stakeholder model without it, or does this create conflict for Directors?
Thank you again for the excellent question and investors are an under utilised resource albeit often time constrained which is an important point to make. Quite often investors have to read 92 pages of disclosure on sustainability and environmental targets just to elicit the key criteria to evidence societal and environmental impact. Through active engagement, investors are able to identify the golden nuggets that they need and companies need to get better at clearly articulating the most impactful, key criteria rather than the 92 page reports.
A1: When purpose is the core of the company’s mission and delivers it through their core business activities, such as a payments company committing to addressing financial inclusion. By nature, payments is an on-ramp to the formal financial system for the unbanked.
A2: continued…
We joined forces with a group of other impact investors including Alpha Mundi, Root Capital, SEAF and AHL to pool our insights on effective ways to help portfolio companies embed gender equity into their business models. The Gender Smart Enterprise Assistance Research Coalition, or G-SEARCh, has partnered with the William Davidson Institute to conduct research and will share results in 2021.